Singapore High Court rejects jurisdictional objection to enforcement of international arbitration awards made in Singapore

Practical Law UK Legal Update Case Report 7-522-9503 (Approx. 7 pages)

Singapore High Court rejects jurisdictional objection to enforcement of international arbitration awards made in Singapore

by Alastair Henderson (Partner) and Sean Izor (Associate), Herbert Smith LLP

Background

Among other things, Part II of the Singapore International Arbitration Act (Cap 143A, 2002 Rev Ed) (IAA), comprising subsections 2 – 26 of the IAA, governs international awards that are made in Singapore (domestic international arbitration awards). Foreign awards are addressed separately under Part III of the IAA, which gives effect to the New York Convention).

Section 3 of the IAA provides that the UNCITRAL Model Law, with the exception of Chapter VIII thereof, shall have the force of law in Singapore.

Section 19 of the IAA provides that an award on an arbitration agreement may, by leave of the court or a judge thereof, be enforced in the same manner as a judgment or an order to the same effect. Where leave is so given, judgment may be entered in terms of the award.

Subsections 19B(1) and (4) of the IAA provide that an award made by an arbitral tribunal pursuant to an arbitration agreement is final and binding on the parties, subject to the right of a person to challenge the award by any available arbitral process of appeal or review, or in accordance with the IAA and the UNCITRAL Model Law.

The final and binding effect of domestic international arbitration awards is qualified by the ability to set them aside on the grounds prescribed in Article 34 of the UNCITRAL Model Law (albeit subject to a three-month time limit) and section 24 of the IAA.

Article 16 of the UNCITRAL Model Law and section 10 of the IAA provide that an arbitral tribunal may rule on a plea that it does not have jurisdiction either as a preliminary question or in an award on the merits. If the tribunal rules on its jurisdiction as a preliminary question, any party may request, within 30 days after having received notice of that ruling, the Singapore courts to decide the matter.

Facts

The dispute arose out of a failed joint venture between the Astro group of companies (Astro) and the Lippo group of companies (Lippo) to provide Pay TV, radio and interactive multimedia services in Indonesia.

In March 2005, a joint venture agreement was reached, as was a Subscription and Shareholders Agreement for the joint venture. The Subscription and Shareholders Agreement was subject to a number of conditions precedent which had to be fulfilled before the parties would be bound to proceed with the transactions contemplated. One of the conditions precedent was the conclusion of service agreements.

From about December 2005, in anticipation of the conclusion of the service agreements and the commencement of the joint venture, at Lippo's request Astro began to provide supporting services and funding to the Lippo Indonesian subsidiary through which the joint venture was to be operated.

By August 2007, after many failed attempts at re-negotiation, it became clear to the parties that the joint venture would not close and the parties began to explore exit options. In the meantime, Astro continued to provide supporting services and funding to the Lippo Indonesian subsidiary, albeit subject to warnings issued by Astro that it would cut off such services and funding if the parties were not able to reach further agreement.

A dispute subsequently arose over the provision of the supporting services and funding. Astro claimed that it was not obliged to and would not continue to provide such services and funding. Lippo alleged the contrary, arguing that Astro was obliged to continue providing such services and funding under an oral joint venture agreement, the terms of which had been agreed on before the Subscription and Shareholders Agreement was executed.

In August 2008, Astro invoiced Lippo for the supporting services and funding and demanded repayment of the cash advanced. Lippo refused to pay and on 14 August 2008, commenced proceedings against Astro in the Indonesian courts, alleging torts arising from the management and funding of the Lippo Indonesian subsidiary. The Indonesian litigation proceeded on the basis that there was an oral joint venture agreement preceding the Subscription and Shareholders Agreement.

Astro took the position that the Indonesian litigation was in breach of the Subscription and Shareholders Agreement, which required any disputes in connection with or in relation to the joint venture to be referred to arbitration. Accordingly, Astro commenced arbitration proceedings on 6 October 2008, with Singapore as the seat of arbitration and in accordance with the SIAC Arbitration Rules 2007 (SIAC Rules 2007). In the arbitration, Astro sought (among other things):

To end the Indonesian litigation.
To join to the arbitration two Astro companies (who had provided the supporting services and funding but were not themselves parties to the Subscription and Shareholders Agreement).
Restitutionary relief to the value of about US$250 million in respect of the supporting services and funding provided.

Lippo claimed that the two Astro companies were not party to the Subscription and Shareholders Agreement and that the tribunal did not have jurisdiction to join them to the arbitration. In an award delivered on 7 May 2009, the tribunal held that:

The real issue was the funding of the service agreements which were envisioned by the Subscription and Shareholders Agreement.
This issue was within the tribunal's jurisdiction.
Rule 24(b) of the SIAC Rules 2007 gave the tribunal power to join the two Astro companies with their express consent, and such joinder was both desirable and necessary in the interests of justice.

Lippo did not appeal from this award on jurisdiction, although it purported to reserve its rights "on any appeal". It proceeded to contest the substantive merits of Astro's claims in the arbitration and filed a counterclaim, although the counterclaim was struck out when Lippo failed to provide security for costs.

Between October 2009 and August 2010, the tribunal delivered four further awards, in which Astro was substantially successful. Astro also took steps to enforce the awards in England, Malaysia, Hong Kong and Singapore, but it is the enforcement of the awards in Singapore which is presently relevant.

In August and September 2010, Astro obtained ex parte leave to enforce the five awards in Singapore. On 14 January 2011, the Singapore enforcement orders were purportedly served on an Indonesian Lippo company in Jakarta. On 24 March 2011, Astro obtained Singapore judgments in terms of the five awards.

Lippo successfully applied to set aside the Singapore judgments on the basis that the Singapore enforcement orders had not been served in accordance with Indonesian law.

Astro appealed. Lippo also sought to set aside the Singapore enforcement orders on the ground that the tribunal lacked jurisdiction to make the awards underpinning them. Lippo argued that it was entitled to rely on this jurisdictional point in order to resist enforcement because section 19 of the IAA "imports" Article 36 or, alternatively, Article 34 of the UNCITRAL Model Law.

Lippo drew support for this argument from the drafting history of the UNCITRAL Model Law, where the possibility of a party raising defences both at the setting-aside stage (that is, under Article 34) and at the recognition and enforcement stage (that is, under Article 36) was specifically contemplated and finally concluded that a party should be able to choose between the two remedies respectively. This has been referred to as "dual control" or "double control" of an arbitral award.

Decision

The Singapore High Court rejected Lippo's attempts to resist the enforcement of the five SIAC arbitration awards.

The validity of service in Indonesia

The High Court confirmed that the Singapore orders had not been served on the Indonesian Lippo company. However, it found that the Singapore enforcement orders had now effectively been brought to Lippo's attention and so it was unnecessary now for Astro to serve the Singapore enforcement orders afresh.

The court held that, under Indonesian law, service of foreign court documents may be effected by a lawyer from an Indonesian firm leaving copies of the documents at the registered address of the party to be served. The court rejected Lippo's contention that more was required.

However, the court also held that, on the facts of this case, there was no effective service, because Astro's service agent did not leave the service documents at the relevant registered office in Jakarta because he was not permitted to do so. In circumstances where a party evades or refuses service, the proper course for the frustrated party is to obtain orders for substituted service. Furthermore, the present case was not an appropriate case to exercise the court's discretion to cure irregularities in service (and it was doubtful, on the facts of the present case, that irregular service had in fact occurred).

The jurisdictional objection

The court rejected Lippo's jurisdictional argument. It held that section 19 of the IAA imported neither Article 36 nor Article 34 of the UNCITRAL Model Law, and there was no other basis on which Lippo could be entitled to raise a jurisdictional point to resist enforcement in circumstances where time limits under Articles 16 and 34 of the UNCITRAL Model Law had long since expired. The court said that this line of argument "resonates with English arbitration law's notion that passive remedies exist after an arbitral award has been made and are available to a losing party to defend enforcement proceedings."

It was implicit in section 3(1) of the IAA, that Article 36 did not have the force of law in Singapore, as section 3(1) stated that:

"Subject to this Act, the Model Law, with the exception of Chapter VIII thereof, shall have the force of law in Singapore."

(Article 36 falls within Chapter VIII of the Model Law.)

While Article 34 does have the force of law in Singapore, it is subject to a strict three-month time limit, which had long since expired. Additional grounds for setting aside an award under section 24 of the IAA (relating to fraud, corruption and natural justice) were not invoked by Lippo.

In any event, the court held that the tribunal addressed jurisdiction in its ruling of 7 May 2009, as a preliminary question under Article 16(3) of the UNCITRAL Model Law. Consequently, Lippo could only request the court to rule on the question of the tribunal's jurisdiction within 30 days after having received notice of the tribunal's ruling on jurisdiction (that is, 6 June 2009).

The court made the following points:

If a party does not appeal an award on jurisdiction, the award will be treated as final between the parties and the hearing on the merits will proceed on the basis (and not just the assumption) that the tribunal has jurisdiction.
If a party has not appealed an award on jurisdiction, it cannot invoke jurisdictional grounds at the setting-aside or enforcement stage.
If a party wishes to retain its right to object to the tribunal's jurisdiction, there is no avenue under the UNCITRAL Model Law to participate in a hearing on the merits under protest, without having lodged an appeal under Article 16(3).
There are no passive remedies when it comes to challenging jurisdiction under the IAA; a party wishing to oppose a jurisdictional award must take action.

(Paragraph 151, judgment.)

The court dismissed as irrelevant the UK Supreme Court decision of Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46 (discussed in Legal update, Dallah Supreme Court decision: full update). The important distinction is that Dallah involved an application to enforce not a domestic international arbitration award (in that case, made in England) but a foreign international arbitration award. Accordingly, in Dallah, the clear legislative avenue for jurisdictional objection lay in Article V(I)(a) of the New York Convention, as enacted by section 103(2)(b) of the English Arbitration Act 1996.

Comment

The decision on Lippo's jurisdictional objection was dictated by an orthodox interpretation of the reasonably plain terms of the IAA and the UNCITRAL Model Law as enacted (and modified) by the IAA. The decision reflects a deliberate decision on the part of the Singapore legislature to curtail curial intervention in favour of finality, certainty and efficiency – all important objectives of international arbitration.

This decision is confined to the enforcement of international arbitration awards made in Singapore and sought to be enforced in Singapore, as award debtors may resist the enforcement of foreign international arbitration awards in Singapore (and elsewhere) pursuant to Article V of the New York Convention. However, as paragraph 86 of the decision and cases cited therein warn, an enforcement court may not permit a party to revive a jurisdictional objection at the enforcement stage because of its conduct and failure to raise the jurisdictional objection before the curial court.

At paragraphs 85 and 86 of the decision, the court recognised that the UNCITRAL Model Law is not a creature typical of the statutes emanating from common law jurisdictions; it more properly resembles civil law drafting. As such, any sensible discussion of the UNCITRAL Model Law must draw from arbitration law in civil law jurisdictions. In this regard, the court drew assistance from the law and decisions of Germany, Quebec, and other Model Law and civil law countries (see paragraphs 81 – 83 and 105 of the judgment).

This decision serves as a reminder of the following practical points:

For cross-border investors who are potential claimants in international arbitration, an important consideration is ensuring that all relevant entities are bound by (that is, execute and are named parties to) the relevant arbitration agreement. Relevant entities will include not only those with deep pockets, but those with accessible assets and business operations (at the very least being resident or operating in countries subject to the New York Convention).
Failing to take or pursue lines of argument is not without consequence or risk, nor is taking positive steps which may constitute a submission to jurisdiction or an acceptance of a state of affairs. The terms of the applicable arbitration legislation in a given jurisdiction are all-important, but parties should also carefully consider the implications of any course of conduct which may give rise to legitimate arguments (whether in the seat, curial or enforcement jurisdiction) that the party is, or should be, estopped or otherwise precluded from raising or reviving a particular line of argument at a later stage.

Lippo has indicated that it will appeal.

Case

Astro Nusantara International BV and others v PT Ayunda Prima Mitra and others [2012] SGHC 212.

Singapore High Court rejects jurisdictional objection to enforcement of international arbitration awards made in Singapore | Practical Law